^ Respect. Thanks STL.
Seems to me the BTC market is likely already cornered (or at least manipulated), although there is really no way to tell (no real SSNs or IDs attached to the accounts). Obviously, the people who own the most BTC are the biggest promoters of the currency:
“That doesn’t make the FBI the world’s largest bitcoin holder. This honor is thought to belong to bitcoin’s shadowy inventor Satoshi Nakamoto, who is estimated to have mined 1 million bitcoins in the currency’s early days. His stash is spread across many wallets. But it does put the federal agency ahead of the Cameron and Tyler Winklevoss, who in July said that they’d cornered about 1 percent of all bitcoins (there are 12 million bitcoins in circulation)”
http://www.wired.com/wiredenterprise/2013/12/fbi_wallet/
So, the Winklevosses, who are not the largest holders of BTC (merely the largest publicly identified) own about 1%. If you think about that in USD terms, saying that they hold 1% of USD supply (M2) then they would own $105B in CASH in a bank account. Not assets. And, it’s assumed they aren’t the largest holder. Given BTC is much less efficient than global currency markets, it sounds like there is plenty of room for market manipulation.
I have to go back and reread money-and-banking economics every six months or so. I used to feel dumb because I felt I should know it by now.
But when you get down to what money is, you end up in the same philosophical swamp as questions like “what does it mean to exist,” because money ends up being valuable primarily because other people are willing to exchange stuff for it. It ultimately boils down to “a dollar is worth a dollar because other people are willing to accept it as worth a dollar, and lots of things are priced in dollars, so we have a broad sense of how to compare things” (so it’s liquid, exchangeable, and a unit of account).
A bitcoin is also valuable is because it’s useful for something - transacting. There are things that limit it’s usefulness: there may not be a large enough selection of goods and services that use it. People may percieve it as unsafe/hackable/whatnot. Governments may regulate things so that you’re not allowed to use them anymore.
On the other hand, it may make other transactions more feasible - drugs, prostitution, etc. - because it’s easier to hide. I’m not saying that that’s all that it’s useful for, or that bitcoin guys are druggies, but clearly thosw who want to do that might prefer to use bitcoins.
It’s hard to see bitcoin as anything but an alternative (if small-ciculating) currency. Bitcoins aren’t useful for anything other than transacting, and perhaps as a unit of account. They are relatively light (the intenet weighs nothing). And they are more useful for some transactions than other.
When I do currency analysis using the balance of payments of model, the underlying idea I use is that the value of currencies relative to another is primarily about how desirable the goods, services, and assets in one currency’s economy are relative to the the desirability of goods, services, and assets are in the other economy. The value of goods and services is primarily about supply and demand, quality, and population; the value of assets are about their expected future growth, modified by the level of risk. So all of that goes into the sense of how much in demand things are.
With bitcoin, the key issue is whether more people will adopt the currency, which would tend to make bitcoin more useful and valuable. If governments try to regulate it more, that will make it less useful.
One thing that the USD is really valuable for is paying US taxes. That’s the only thing that a US dollar is guaranteed to do is extinguish 1 dollar of US tax liability. So, in a weird way, the Bush tax cuts made the US dollar less needed, because there weren’t as many taxes to use dollars for (this is in addition to all the effects mediated by an unbalanced budget). That’s not an argument in favor of raising taxes, but simply an interesting and unexpected consequence of lowering them.
I think I understand Bitcoin a little more than you gave me credit for in that reply. My basic point is it is way more complex than my ability to understand. And I’d rather admit I don’t have expertise in something than just trust something that appears complex and secure like humans are prone to do. The open source aspect is supposed to serve in that role
Great article, thanks.
It is interesting that the developer of the currency holds the largest amount of coins (albeit over several wallets). That’s a lot influence in the hands of someone that probably has some kind of plan for all of this in the long run.
This Satoshi guy or group essientially invented a currency and printed a huge chunk for themselves. Pretty slick.
There are a couple ways of considering how btc could be “cornered.” First is what you’re talking about. A thinly traded commodity being held by a few people. It would be just like the Hunt brothers cornering silver 30 years ago. That certainly can cause a valuation problem but it probably wouldn’t destroy btc.
The idea of cornering the mining aspect of btc threatens the integrity of the whole system. So, two different things entirely.
I doubt that BitCoin creators can somehow flip a switch and run off with all the money. However, is it a very unstable system that might crash and lose 90% of value in the next 2 years? Certainly. Also, even if the system is not inherently fraudulent, this does not mean that certain people cannot use BitCoin as a medium to scam other, less knowledgeable people, just as scammers can use any other currency or product.
The volatility, and lack of familiarity, precedent, and consumer protection laws in BitCoin does make this medium more risky than most traditional currencies
Also, on the subject of that article, I think there’s a fair amount of BS there. First off, no one knows who Satoshi is. It may be one dude or a team of programers. Secondly, yes, he/they did mine the first several blocks (it’s public info) but in an effort to market btc, he/they gave most of them away. I’m sure Satoshi is doing just fine (provided he’s still alive since he hasn’t been heard from in years) but I seriously doubt he held on to most of the blocks he mined.
Keep in mind that back then they were absolutely worthless. All signs point to Satoshi’s motivation being to create a new digital currency, not to get wealthy. (Think about most extremely high level programmers. They don’t really care about money. They want to create something new that will change the world.)
As I believe I’ve said before on here, the first btc transaction was for two Papa John pizzas for 10,000 bitcoins. Holding on to a million of them back then wouldn’t have been that appealing.
^ I’m suspicsious on this pretense. I was at the bar the other night (no surprise). This IT slob looking guy sat next to me playing on his iPad or something. He asked if I knew about bitcoins (on the real). I said somewhat. He showed me how awesome of a digital currency it was, it’s worth, and bla bla bla. It honestly sounded cultlike the way he spoke. In any case, I tuned him out and turned to converse with the solid 5 sitting on the other side of me.
Not to threadjack, but Macro Man’s Blog was hilarious today:
http://macro-man.blogspot.com/2014/01/emerging-market-fx-questions.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MacroMan+(Macro+Man) Having heard many questions being asked about EMFX (most of which have been answered by new Armchair EM Generals using their favourite tools of rearview mirrors and extrapolationist rulers), we thought we would ask some much more important questions. If you had 200 USDs worth of Turkish Lira in your hand would you :- - Look at them as if someone had placed a turd in your hand screaming “Arrgh!” - Place it in a Turkish Bank and watch your savings grow by a newly exciting 12% p/a - Buy corporate bonds in Turkish company Arçelik and display them amusingly on your toilet wall. - Convert them to USD and find you’ve now only got $100. - Buy a small coffee in Bodrum and have to cover the difference in Euros. If you had 200 USDs worth of Russian Rouble in your hand would you :- - Look at them as if someone had placed a turd in your hand screaming “Arrgh!” - Donate it to Mr Putin’s retirement home for sick puppies. - Check your wallet for receipts to work out where the hell you were last night. - Convert them to USDs and find that you have only $20 and a menacing look from Yuri the money changer. - Buy a small bottle of water in Moscow and pay the difference in Euro. If you had 200 USDs worth of South African Rand in your hand would you :- - Look at them as if someone had placed a turd in your hand screaming “Arrgh!” - Call up Charlize Theron and tell her dinner is on you. - Convert them into USDs and promptly get arrested by over zealous FBI for money laundering. - Buy shares in a local gold mine and go back to writing comments on Zero Hedge. - Buy half a gram of Biltong and pay the difference in Euro. If you had 200 USDs worth of Brazilian Real in your hand would you :- - Look at them as if someone had placed a turd in your hand screaming “Arrgh!” - Hide them from your wife. - Ask if they were like Bitcoin as you’ve never heard of them. - Sell them and buy US bonds in nice Mr Gross’s fund as he suggests. - Buy a Ticket to watch the World Cup in Joao’s favela bar, paying the difference in drugs. If you had 200 USDs worth of Indian Rupees in your hand would you :- - Look at them as if someone had placed a turd in your hand screaming “Arrgh!” - Have managed to sell insurance to 50 Sky customers in the UK from your cold-call center in Bangalore. - Find your old rucksack and head off to relive your hippy days in Goa in a cloud of smoke. - Trade the 3mth vs 6mth INR NDF as a rate hedge and find the spread cost you more than the face (due to market volatility sir sorry). - Buy a British car company and be given a sweetener by the UK government of £1m to go with it. If you had 200 USDs worth of Hungarian Florint in your hand would you :- - Not worry because it’s a surplus country 'innit. - Resurrect the trusty solvency issue and scream “Arrgh!” - Give them to Kinga the Au Pair to take home to her parents in the mountains. - Arrange Dave’s stag (batchelor) party in Budapest (when there is no Dave) - Buy a quarter bottle of Tokaj 7 puttonyos and pay the difference in Swiss mortgage bonds. If you had 200 USDs worth of Chinese Renminbi in your hand would you :- - Celebrate as it’s going to be worth even more USDs. - Offer it to a passing group of HF managers who politely decline it already owning 300bio of their own. - Buy USDs then USTs, not because you listen to PIMCO but because you are SAFE and its what you do anyway. - Buy 50 LED lightbulbs off Alibaba and find they are rubbish. - Buy a Louis Vetton bag from Beijing street hawker and borrow the difference from a local official. And finally - If you had 200 USDs worth of USDs in your hand would you :- - Use them as margin to go short of all the above. - Buy any of the above as one day you’ll need them as a tax haven. - Rejoice you got a bonus no matter how small. - Call your friends and ask if you left the other $800 on the bar. - Buy a Senator funding the difference by issuing subprime debt that is bought by the Fed.
At this point, Bitcoin is more of a commodity than a currency. More and more businesses are starting to accept Bitcoin, but thats because they cash out immediately and don’t hold it. Once the 21 million limit is reached, then we may see more stability in the price.
But until then, I say trade Bitcoin as a short-term commodity instead of using it as currency.
That’s an odd statement. Dollars are printed by the trillions and the supply of gold increases each year with a certain degree of predictability. What does the 21mm limit on btc have to do with anything?
As for it being a commodity…of course it is. As far as I can tell, all currencies are commodities.
Well the U.S dollar is regulated and gold has been around forever which explains the price stability. With Bitcoin we don’t know what to expect. This thread is an example of the two extreme Bitcoin impressions. Some think it’s the currency of the future and some think it’s a scam. Those impressions drive the crazy volatility we are seeing in it right now.
I like the idea of a centralized digital currency…but I don’t think Bitcoin’s model will be effective.
^ How is the U.S. dollar regulated?
Lmao
Yo STL, wtf!
What a week for Bitcoin. First, the popular digital currency suffered a massive cyberattack on its public register or ledger, via a distributed denial of service (DDOS) attack on Bitcoin exchanges. The ledger notes every bitcoin transaction, and malicious parties were entering fake transactions and mucking up exchange data. Now using the same exploit, hackers ripped $2.7 million worth of Bitcoin from Silk Road 2.0, the successor to the illicit marketplace Silk Road.
The hit to the public ledger of Bitcoin, and now outright theft from Silk Road 2.0, is seen as another blow to the currency’s viability. The DDOS attack followed a massive drop in the price of Bitcoin last week when Mt. Gox, one of the major exchanges, had to temporarily halt withdrawals after discovering the vulnerability in the Bitcoin register. For a more technical explanation of what happened, check here.
^Some people got lulled into feeling safe because its complex lol
Wedbush Securities Becomes First Financial Institution to Accept Bitcoin Payments in the United States
^ That must be an AML compliance nightmare.
I invested in Bitcoin sub-$100 in late 2012 so I feel like I kind of understand it bit more than most. Personally, I was attracted to the lack of central-bank manipulation of the currency and found the privacy angle of it quite interesting (on a macro-societal level I believe that many people in particular the younger generation will shun Facebook and other social media intermediaries that sell our privacy and that Bitcoin plays into this). I agree that volatility hurts its adoption, but it’s still a very new currency and a lot of institutional money seems to be flowing into it now so that should help stabilize it going forward.
That said, I have personally sold off my holdings and would not recommend anyone touching it at the current price levels as it’s way overshot its present value. It’s way way too risky to warrant such a high valuation, given the fact that 1) the current exchanges are not secure or trustworthy (see mt gox), 2) world governments are not interested in a currency they can’t control and 3) there is a proliferation of other crypto-currencies coming on line that offer the potential for speculators to get in at a lower price point and that will likely syphon off liquidity and support from Bitcoin.